A new academic paper shows that hydrogen made with renewable electricity is cost-competitive with smaller-scale production of hydrogen sourced from natural gas. Within a few years, the researchers say, water electrolysis will have become cheaper than manufacture from fossil fuels across all sizes of hydrogen manufacturing plant, including the very largest.

A chart from the paper comparing the current price for hydrogen paid by large, medium and small users with the breakeven cost of producing it from electrolysis

The conclusion has great significance. Low cost renewable hydrogen enables 100% decarbonisation across the global economy. Electrolysis will allow the world to generate huge, erratic and unpredictable amounts of electricity and use the temporary surpluses to produce hydrogen. This gas can then be stored for later use as a fuel for gas turbines, employed in fuel cells for transportation or converted to hydrocarbons that mimic fossil fuels such as oil and gas. Hydrogen is the vector, or link, that allows us to use electricity from wind and solar to provide almost all energy needs.

This important research shows that the falling price of renewable electricity, combined with declining electrolyser prices and improved efficiency enables complete replacement of all sources of fossil energy. In summary, we can see a route to a near-costless transition to a low carbon economy. The world has not yet arrived at a point where renewable sources of electricity are always cheaper than oil and gas but that target is now in sight.

Commentators have predicted the arrival of a hydrogen-based economy for the last thirty years. Is this paper yet another example of unsupported optimism? I suggest that sceptics might look at two news items over the last couple of days.

· On Monday, NEL, the leading Norwegian manufacturer of electrolysers, announced a contract to build a 2 MW plant in Switzerland as part of a 30 MW contract. The eventual size of the electrolysis equipment is expected to be 60-80 MW to supply heavy vehicles on Swiss roads.

· In Canada, Hydrogenics, one of the world leaders in PEM electrolysis, the technology likely to dominate in the next few years, said it had sold the world’s largest ever electrolyser system to Air Liquide. This 20 MW unit is approximately eight times the size of the largest existing Hydrogenics installation and twice the size of the previous largest contract in the world.

Both the frequency of electrolyser sales and the scale of the orders – which I guess will probably move to the 100 MW plus scale within 18 months – show a technology rapidly improving in competitiveness.

The main conclusions of the paper

· The break-even price of renewably-sourced hydrogen made from wind electricity in Germany is now approximately €3/kg. This is below the price of hydrogen sold to small and medium customers made from steam reforming of natural gas. A kilogramme of hydrogen contains about 39.4 kilowatt hours of energy. So the cost price per kilowatt hour of hydrogen is just over 7.5 Euro cents. (For comparison, the price of the energy in crude oil is around 5 Euro cents per kWh at $65 a barrel).

· By the late-2020s, the cost of hydrogen will fall to little more €2.50/kg, or around 6.3 Euro cents per kWh. At this level, hydrogen is cheaper to make from the electrolysis of water than from fossil fuels in large refineries and ammonia plants, the main global users of the gas.

· The increasing competitiveness of electrolysis derives, in the researchers’ view, from falling electrolyser costs, cheapening wind power and increased variability of market prices for electricity. (The paper focuses on wind not solar).

· The researchers assume that operators of wind farms will sell their power into the electricity market if the price is above a certain level. If the price falls, production of electricity will be diverted to electrolysis. The increasing variability of electricity prices as more and more wind (and solar) arrives on electricity grids allows electrolysers to work with electricity that is typically cheaper each year, as more hours of electricity production occur when prices are below the level at which it is more profitable to produce hydrogen.

· The paper makes assumptions about electrolyser costs and efficiencies. Today’s PEM electrolysers are recorded as costing around €1600 per kilowatt of capacity. That number looks high to me since ITM Power, the leading UK electrolyser manufacturer, is quoting €800/kW for 10 MW installations. I suspect that the estimates in the paper for the price of electrolysis and, to a lesser extent its energy efficiency, are possibly too pessimistic. This is an important shift and ITM’s electrolyser price would reduce the break-even cost of hydrogen by at least 1 Euro cent per kilowatt hour, making electrolysis cost-competitive within a few years across all size ranges.

· Wind turbine costs are also seen as falling, resulting in lower average prices of power, also helping the economics of renewable hydrogen. Making hydrogen from solar PV, particularly in sunny tropical regions would be even cheaper.

To quickly summarise, this is an intricate, carefully argued paper with real economic logic. It provides the intellectual framework that shows why we are seeing rapidly increasing interest in renewable hydrogen around the world.

To be clear, the researchers are not necessarily arguing that hydrogen should be used more for energy purposes in such users as fuel cell cars or hydrogen ships and trains. They are simply saying that hydrogen manufacture – currently mostly for oil refining and ammonia manufacture – is now almost as cheap using electrolysis as the traditional method of steam reforming. Hydrogen is responsible for about 2% of global emissions today. That will disappear with the switch to electrolysis. More importantly, hydrogen allows the world to vastly expand its renewable electricity infrastructure and store surpluses as either hydrogen or other hydrocarbons that can easily be made from the gas.